Omission of An Increase in Disposable Income In Chapter 13

Disposable Income (album)

Disposable Income (album) (Photo credit: Wikipedia)

The omission of any increase of disposable income during a Chapter 13 bankruptcy plan can be a reason for dismissal of the case by the bankruptcy Court.

Recently on a bankruptcy forum website, a debtor in their second year of their Chapter 13 bankruptcy plan offered these comments: “On my Chapter 13 approval, my trustee didn’t request for any on-going tax return or any salary increase to show. Since last year my salary almost doubled, and [I am] saving the extra money every month for rainy days. Now I would like to replace my old car but don’t want to go through the trustee’s approval to get a loan. I’m trying to get a new car because most of the newer ones come with four year free maintenance [agreement].”

Omission of Facts Never a Good Idea in Any Bankruptcy

The omission of any facts relating to any type of bankruptcy case is never a good idea. The federal bankruptcy system has been created to allow you and your creditors to legally get out of a bad financial situation. Both the federal bankruptcy courts and the filers who use them are required by federal bankruptcy laws to be honest in their dealings. Both have to follow detailed and complicated bankruptcy laws.

Circumventing bankruptcy laws could cause you to end up, at the least, having your case dismissed or, at the worse, having fraud charges brought up against you for violating the laws. If you are suspected of fraud, filed against, and convicted, you could face up to 5 years in a federal prison and/or a fine up to $250,000.

Bankruptcy Laws Concerning Omission of Disposable Income

Bankruptcy laws are somewhat vague when it comes to future disposable income in a Chapter 13 plan. Bankruptcy courts and their representatives are given a lot of leeway in determining what to do in a plan when conditions change.

Prior to making a plan, the debtor is required to make an honest effort to include all foreseeable disposable income projected to be available for distribution to creditors during the course of the plan. Sometimes, after a plan is already in progress, unforeseeable income can increase. This obviously happened to the debtor in the above illustration.

What happens when such an omission occurs depends on the bankruptcy court trustee and each particular situation of the filing debtor. If the debtor is already in a 100% payment plan, the increase of new income, if reported to the trustee, can actually help the debtor finish the plan earlier than designed. If the plan is a partial payback type of plan, the debtor has a responsibility to report the income to the court. The income increase will be evaluated by the court in relationship to disposable income and whether or not the plan should increase or decrease payments. In some cases, the expenses of debtors can also increase when income increases.

It is always a good idea to discuss and report all income increases during a Chapter 13 plan with your bankruptcy attorney who can best advise you legally concerning your responsibility in reporting any change to the bankruptcy court.

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